UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549


                                   FORM 10-Q/A



            X    QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF
         -------
                 THE SECURITIES EXCHANGE ACT OF 1934

                  For the quarterly period ended June 30, 2002
                                                 -------------

                 TRANSITION REPORT PURSUANT TO SECTION 13 OR
         -------
                 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

                        For the transition period from         to
                                                       --------

                         Commission file number 1-14762

                            THE SERVICEMASTER COMPANY
             (Exact name of registrant as specified in its charter)

           Delaware                                       36-3858106
(State or other jurisdiction of                (IRS Employer Identification No.)
 incorporation or organization)

3250 Lacey Road, Downers Grove, Illinois                     60515-1700
(Address of principal executive offices)                     (Zip Code)

                                  630-663-2000
              (Registrant's telephone number, including area code)


Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the  preceding 12 months (or for such  shorter  period that the  registrant  was
required  to file  such  reports),  and  (2) has  been  subject  to such  filing
requirements for the past 90 days. Yes X No .

Indicate the number of shares  outstanding  of each of the  issuer's  classes of
common stock: 302,368,000 shares of common stock on August 7, 2002.


Explanatory  Note:
This  amendment  is being  filed to reflect  the  restatement  of the  Company's
unaudited condensed  consolidated  financial statements,  as discussed in Note 2
thereto, and other information related to such restated financial statements.


<PAGE>






                                TABLE OF CONTENTS

                                                                            Page
                                                                             No.

THE SERVICEMASTER COMPANY (Registrant) -

Part I.  Financial Information

Item 1 : Financial Statements

Condensed Consolidated Statements of Income for the three and six
 months ended June 30, 2002 (Restated) and June 30, 2001 (Restated)            2

Condensed Consolidated Statements of Financial Position
   as of June 30, 2002 (Restated) and December 31, 2001 (Restated)             4

Condensed Consolidated Statements of Cash Flows for the six months
   ended June 30, 2002 (Restated) and June 30, 2001 (Restated)                 5

Notes to Condensed Consolidated Financial Statements (Restated)                6

Item 2: Management Discussion and Analysis of Financial
   Condition  and Results of Operations                                       17

Item 3:  Quantitative and Qualitative Disclosures About
     Market Risk                                                              24


Part II.  Other Information

Item 4:  Submission of Matters to a Vote of Security Holders                  25


Item 6:  Exhibits and Reports on Form 8-K                                     25

Signature                                                                     26

Exhibit 99.1:  Certification of Chief Executive Officer Pursuant
to Section 1350 of  Chapter 63 of Title 18 of the
United States Code                                                            29

Exhibit 99.2:  Certification of Chief Financial Officer Pursuant
to Section 1350 of Chapter 63 of Title 18 of the
United States Code                                                            30





                                       1
<PAGE>




<TABLE>


                          PART I. FINANCIAL INFORMATION

                            THE SERVICEMASTER COMPANY
             CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
                      (In thousands, except per share data)

                                                                             Three Months Ended               Six Months Ended
                                                                                  June 30,                        June 30,
                                                                             2002           2001             2002           2001
                                                                        (Restated 4)    (Restated 4)     (Restated 4)   (Restated 4)
                                                                       -------------   -------------   --------------  -------------
<S>                                                                     <C>             <C>             <C>             <C>
OPERATING REVENUE ..................................................    $ 1,034,937     $ 1,020,034     $ 1,769,200     $ 1,742,895

OPERATING COSTS AND EXPENSES:
Cost of services rendered and products sold.........................        680,381         681,006       1,211,192       1,211,487
Selling and administrative expenses.................................        217,728         205,026         379,330         345,795
Goodwill, trade name and other intangible amortization (1)..........          2,152          18,071           4,306          35,353
                                                                        -----------     -----------     -----------     -----------
Total operating costs and expenses..................................        900,261         904,103       1,594,828       1,592,635
                                                                        -----------     -----------     -----------     -----------

OPERATING INCOME ...................................................        134,676         115,931         174,372         150,260


NON-OPERATING  EXPENSE (INCOME):
Interest expense ...................................................         21,725          31,825          44,266          66,399
Interest and investment income......................................         (1,966)         (4,324)         (4,898)         (5,573)
Minority interest and other expense, net............................          2,014           2,838           3,584           1,064
                                                                        ------------    ------------    ------------    ------------

INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAXES ..............        112,903          85,592         131,420          88,370
Provision for income taxes..........................................         41,466          35,857          48,125          37,901
                                                                        ------------    ------------    ------------    ------------

INCOME FROM CONTINUING OPERATIONS BEFORE EXTRAORDINARY
     ITEMS .........................................................         71,437          49,735          83,295          50,469
Income from discontinued operations, net of income taxes (2) .......            295           4,225              78           9,483
Extraordinary gain (loss), net of income taxes (3) .................         (9,229)              -          (9,229)          6,003
                                                                        ------------    ------------    ------------    ------------
NET INCOME .........................................................    $    62,503     $    53,960     $    74,144     $    65,955
                                                                        ===========     ===========     ===========     ===========

PER SHARE:
Basic Earnings Per Share:
Income from continuing operations before extraordinary items .......    $      0.24     $      0.17     $      0.28     $      0.17

Discontinued operations, net (2) ...................................              -            0.01               -            0.03
Extraordinary gain (loss) (3) ......................................          (0.03)              -           (0.03)           0.02
                                                                        ------------    ------------    ------------    ------------
                                                                        $      0.21     $      0.18     $      0.25     $      0.22
                                                                        ============    ============    ============    ============
Shares .............................................................        301,092         298,547         300,653         298,170


Diluted Earnings Per Share:
Income from continuing operations before extraordinary items .......    $      0.23     $      0.16     $      0.27     $      0.17

Discontinued operations, net (2) ...................................              -            0.01               -            0.03
Extraordinary gain (loss) (3) ......................................          (0.03)              -           (0.03)           0.02
                                                                        -----------     -----------     -----------     -----------
                                                                        $      0.20     $      0.18     $      0.24     $      0.22
                                                                        ===========     ===========     ===========     ===========
Shares .............................................................        316,474         310,764         307,700         302,143

Dividends per share ................................................    $      0.10     $      0.10     $      0.20     $      0.20
                                                                        ===========     ===========     ===========     ===========


</TABLE>


                                       2
<PAGE>








(1) The Company adopted Statement of Financial  Accounting  Standards (SFAS) No.
142, "Goodwill and Other Intangible  Assets",  which eliminates the amortization
of goodwill and intangible  assets with indefinite  lives beginning in 2002. Had
the provisions of SFAS 142 been applied to 2001, amortization expense would have
been reduced by $15.6  million  ($10.6  million,  after-tax)  and $30.5  million
($20.7  million,  after-tax)  for the three and six month periods ended June 30,
2001, respectively.

(2) In the fourth quarter of 2001, the Company's  Board of Directors  approved a
series of actions related to the strategic review of its portfolio of businesses
that commenced earlier in 2001. These actions included the sale in November 2001
of the Company's  Management  Services  business as well as the decision to exit
certain   non-strategic  and  under-performing   businesses  including  TruGreen
LandCareConstruction  and Certified  Systems,  Inc., as well as certain Terminix
operations  in Europe.  During the third  quarter of 2002,  the Company sold its
remaining  European  Terminix  operations.  These  operations  are classified in
"Discontinued operations" for all periods presented.

(3) The Company  purchased a portion of its public debt securities in the second
quarter of 2002 and in the first  quarter of 2001.  The Company has  recorded an
extraordinary gain (loss) from the early extinguishment of debt related to these
repurchases.  The Company  intends to adopt SFAS 145  beginning  in fiscal 2003.
Adoption  of  SFAS  145 in  2003  will  result  in the  reclassification  of the
extraordinary gain/loss into income from continuing operations.

(4) See Note 2 in the Notes to the Condensed  Consolidated  Financial Statements
for the basis of the restatement and the financial statement impact.



            See Notes to Condensed Consolidated Financial Statements





                                       3
<PAGE>



<TABLE>


                            THE SERVICEMASTER COMPANY
       CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL POSITION (UNAUDITED)

(In thousands)                                                     As of Jun. 30,         As of Dec. 31,
ASSETS                                                            2002 (Restated 1)     2001 (Restated 1)
                                                                    -----------            -----------
CURRENT ASSETS:
<S>                                                                 <C>                    <C>
Cash and cash equivalents .......................................   $   132,744            $   402,644
Marketable securities ...........................................        72,340                 72,429
Receivables, less allowance of $33,919 and $28,397, respectively        401,733                340,935
Inventories .....................................................        77,957                 68,036
Prepaid expenses, deferred costs and other assets ...............       130,156                 80,738
Deferred taxes and income taxes receivable ......................       117,852                 90,200
Assets of discontinued operations ...............................        44,237                 64,068
                                                                    -----------            -----------
       Total Current Assets .....................................       977,019              1,119,050
                                                                    -----------            -----------
PROPERTY AND EQUIPMENT:
   At cost ......................................................       473,782                469,140
   Less: accumulated depreciation ...............................      (281,445)              (272,930)
                                                                    -----------            -----------
     Net property and equipment .................................       192,337                196,210
                                                                    -----------            -----------

OTHER  ASSETS:
Goodwill ........................................................     1,909,792              1,904,178
Intangible assets, primarily trade names ........................       259,096                261,136
Notes receivable ................................................        59,352                 59,204
Long-term securities and other assets ...........................        73,789                 81,467
                                                                    -----------            -----------
       Total Assets .............................................   $ 3,471,385            $ 3,621,245
                                                                    ===========            ===========

LIABILITIES AND SHAREHOLDERS' EQUITY

CURRENT LIABILITIES:
Accounts payable ................................................   $   100,832            $    97,251
Accrued liabilities:
   Payroll and related expenses .................................        79,270                 83,182
   Self-insured claims and related expenses .....................        79,838                 63,819
   Income taxes payable .........................................        11,258                     --
   Other ........................................................       109,864                131,780
Deferred revenues ...............................................       428,572                343,873
Liabilities of discontinued operations ..........................        55,160                 50,449
Current portion of long-term debt ...............................        44,496                 34,944
                                                                    -----------            -----------
       Total Current Liabilities ................................       909,290                805,298
                                                                    -----------            -----------

LONG-TERM DEBT ..................................................       831,873              1,120,249

LONG-TERM LIABILITIES:
     Deferred taxes .............................................       257,146                233,000
     Liabilities of discontinued operations .....................        21,632                 50,600
     Other long-term obligations ................................       112,323                102,234
                                                                    -----------            -----------
        Total Long-Term Liabilities .............................       391,101                385,834
                                                                    -----------            -----------

MINORITY INTEREST ...............................................       102,200                102,677

COMMITMENTS AND CONTINGENCIES

SHAREHOLDERS' EQUITY:
Common stock $0.01 par value, authorized 1 billion shares; issued
     315,503 and 314,538 shares, respectively ...................         3,155                  3,145
Additional paid-in capital ......................................     1,049,452              1,039,228
Retained earnings ...............................................       336,649                322,103
Accumulated other comprehensive loss ............................        (5,783)                (2,496)
Restricted stock ................................................          (491)                  (581)
Treasury stock ..................................................      (146,061)              (154,212)
                                                                    -----------            -----------
       Total Shareholders' Equity ...............................     1,236,921              1,207,187
                                                                    -----------            -----------
       Total Liabilities and Shareholders' Equity ...............   $ 3,471,385            $ 3,621,245
                                                                    ===========            ===========
</TABLE>

(1) See Note 2 in the Notes to the Condensed  Consolidated  Financial Statements
for the basis of the restatement and the financial statement impact.

            See Notes to Condensed Consolidated Financial Statements



                                       4
<PAGE>


<TABLE>



                            THE SERVICEMASTER COMPANY
           CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
                                 (In thousands)
                                                                                 Six Months Ended
                                                                                       June 30,
                                                                                2002              2001
                                                                             (Restated 1)     (Restated 1)
                                                                              ----------       ----------

<S>                                                                           <C>              <C>
CASH AND CASH EQUIVALENTS AT JANUARY 1 ....................................   $ 402,644        $  42,669

CASH FLOWS FROM OPERATIONS:
NET INCOME ................................................................      74,144           65,955
     Adjustments to reconcile net income to net cash flows from operations:
        Income from discontinued operations ...............................         (78)          (9,483)
        Extraordinary (gain) loss .........................................       9,229           (6,003)

        Depreciation expense ..............................................      24,291           24,547
        Amortization expense ..............................................       4,306           35,353
        Deferred income tax expense .......................................      39,758           43,357

         Change in working capital, net of acquisitions:
            Receivables ...................................................     (59,876)         (76,176)
            Sale of receivables ...........................................          --          100,000
            Inventories and other current assets ..........................     (62,160)         (66,895)
            Accounts payable ..............................................       4,590             (406)
            Deferred revenues .............................................      84,625           79,500
            Accrued liabilities ...........................................      22,179           12,037
            Tax refund from prior years payments ..........................          --           21,000
            Other, net ....................................................       2,165            3,235
                                                                              ---------        ---------
NET CASH PROVIDED FROM OPERATIONS .........................................     143,173          226,021
                                                                              ---------        ---------

CASH FLOWS FROM INVESTING ACTIVITIES:
      Property additions ..................................................     (29,387)         (20,583)
      Sale of equipment and other assets ..................................       1,140            7,702
      Business acquisitions, net of cash acquired .........................      (6,849)         (21,065)
      Proceeds from business sales and minority interests .................          --            4,925
      Notes receivable, financial investments and securities ..............      (4,228)         (21,562)
                                                                              ---------        ---------
NET CASH USED FOR INVESTING ACTIVITIES ....................................     (39,324)         (50,583)
                                                                              ---------        ---------

CASH FLOWS FROM FINANCING ACTIVITIES:
      Net payments of debt ................................................    (295,570)        (141,310)
      Purchase of ServiceMaster stock .....................................          --           (1,308)
      Shareholders' dividends .............................................     (59,598)         (59,792)
      Other, net ..........................................................      12,825            5,125
                                                                              ---------        ---------
NET CASH USED FOR FINANCING ACTIVITIES ....................................    (342,343)        (197,283)
                                                                              ---------        ---------

                                                                              ---------        ---------
CASH USED FOR DISCONTINUED OPERATIONS .....................................     (31,406)          (3,744)
                                                                              ---------        ---------

CASH DECREASE DURING THE PERIOD ...........................................    (269,900)         (25,591)
                                                                              ---------        ---------

CASH AND CASH EQUIVALENTS AT JUNE 30 ......................................   $ 132,744        $  17,080
                                                                              =========        =========
</TABLE>


(1) See Note 2 in the Notes to the Condensed  Consolidated  Financial Statements
for the basis of the restatement and the financial statement impact.

            See Notes to Condensed Consolidated Financial Statements



                                       5
<PAGE>




                            THE SERVICEMASTER COMPANY
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                   (UNAUDITED)

Note 1: The condensed  consolidated financial statements include the accounts of
ServiceMaster and its subsidiaries,  collectively  referred to as "the Company".
Intercompany transactions and balances have been eliminated in consolidation.

Note 2: The condensed  consolidated  financial  statements have been prepared by
the Company in accordance  with  generally  accepted  accounting  principles and
pursuant to the rules and regulations of the Securities and Exchange Commission.
The  Company  suggests  that  the  quarterly  condensed  consolidated  financial
statements be read in conjunction with the consolidated financial statements and
the notes  thereto  included  in the  Company's  most  recent  Annual  Report to
Shareholders and the Annual Report to the Securities and Exchange  Commission on
Form  10-K.  The  condensed   consolidated   financial  statements  reflect  all
adjustments,  which are in the  opinion of  management,  necessary  for the fair
presentation of the financial position, results of operations and cash flows for
the interim  periods.  The results of operations  for any interim period are not
necessarily indicative of the results which might be obtained for a full year.

RESTATEMENT
The Company has  restated its  consolidated  financial  statements  for the year
ended December 31, 2001 as well as the previously reported quarterly results for
2002  and  2001.   Subsequent  to  the  original  issuance  of  these  condensed
consolidated  financial  statements,  management  determined that the historical
accounting  treatment relating to the items below required  revision.  The table
below presents the net income impacts from the restatements.
<TABLE>

                                       Three Months    Three Months       Six Months      Six Months
                                           Ended          Ended             Ended           Ended
(In millions, except per share data)   June 30, 2002  June 30, 2001     June 30, 2002   June 30, 2001
-------------------------------------------------------------------------------------------------------
Continuing Operations:
<S>                                            <C>          <C>               <C>             <C>
AHS deferred acquisition costs                 $   -        $(0.5)            $    -          $ (4.7)
Trade name license fee                          (1.3)           -               (2.5)              -
Interim accounting (TruGreen)                    7.8          5.6               (4.0)           (9.3)
Other, net                                       2.9         (0.2)               2.7             2.8
Tax adjustment from reincorporation                -         (0.2)                 -            (0.4)
-------------------------------------------------------------------------------------------------------
  Income Impact                                $ 9.4        $ 4.7             $ (3.8)         $(11.6)
  Diluted EPS Impact                           $0.03        $0.02             $(0.01)         $(0.04)

Discontinued Operations:
  Income Impact                                $ 0.1        $(1.4)            $ (0.1)         $ (2.4)
  Diluted EPS Impact                           $   -        $   -             $    -          $(0.01)

Cumulative effect of accounting
  change:
  Income Impact                                $   -        $   -             $ 44.6          $    -
  Diluted EPS Impact                           $   -        $   -             $ 0.15          $    -
</TABLE>

A summary of the significant effects of the restatement is as follows:
<TABLE>

                                                    Three Months Ended                Three Months Ended
                                                      June 30, 2002                      June 30, 2001
                                              ----------------------------------------------------------------
                                              As Previously                      As Previously
(in thousands, except per share data)          Reported (1)    As Restated        Reported (1)    As Restated
--------------------------------------------------------------------------------------------------------------

<S>                                               <C>             <C>                <C>            <C>
Operating revenue                                 $1,032,807      $1,034,937         $1,015,687     $1,020,034

Operating income                                     118,158         134,676            108,386        115,931

Income  from  continuing  operations  before
  income taxes                                        97,305         112,903             77,468         85,592

Income from continuing operations                     62,024          71,437             45,019         49,735

Discontinued operations, net                             200             295              5,694          4,225
Extraordinary loss, net                              (9,229)         (9,229)                  -              -
==============================================================================================================
Net income                                           $52,995         $62,503            $50,713        $53,960
==============================================================================================================
Diluted earnings per share:
Income from continuing operations                      $0.20           $0.23              $0.15          $0.16

Discontinued operations, net                               -               -               0.02           0.01
Extraordinary loss, net                               (0.03)          (0.03)                  -              -
==============================================================================================================
Diluted earnings per share                             $0.17           $0.20              $0.17          $0.18
==============================================================================================================
</TABLE>


                                       6
<PAGE>
<TABLE>

                                                          As of                              As of
                                                      June 30, 2002                    December 31, 2001
                                              ------------------------------- -- ------------------------------
                                              As Previously                      As Previously
                                               Reported (1)    As Restated        Reported (1)    As Restated
                                              --------------- --------------- -- --------------- --------------
<S>                                                 <C>             <C>              <C>            <C>
Current assets                                      $949,102        $977,019         $1,131,824     $1,119,050
Net property, plant, and equipment                   177,605         192,337            180,937        196,210
Other long-term assets                             2,357,518       2,302,029          2,361,978      2,305,985
--------------------------------------------------------------------------------------------------------------
Total assets                                      $3,484,225      $3,471,385         $3,674,739     $3,621,245
==============================================================================================================

Current liabilities                                 $898,091        $909,290           $796,113       $805,298
Long-term debt                                       817,141         831,873          1,105,518      1,120,249
Long-term liabilities                                458,198         391,101            449,470        385,834
Minority interest                                    102,200         102,200            102,677        102,677

Total shareholders' equity                         1,208,595       1,236,921          1,220,961      1,207,187
--------------------------------------------------------------------------------------------------------------
Total liabilities and shareholders' equity        $3,484,225      $3,471,385         $3,674,739     $3,621,245
==============================================================================================================

</TABLE>
<TABLE>

                                                     Six Months Ended                  Six Months Ended
                                                      June 30, 2002                      June 30, 2001
                                              -----------------------------------------------------------------
                                              As Previously                      As Previously
(in thousands, except per share data)          Reported (1)    As Restated        Reported (1)    As Restated
---------------------------------------------------------------------------------------------------------------

<S>                                               <C>             <C>                <C>            <C>
Operating revenue                                 $1,766,192      $1,769,200         $1,735,278     $1,742,895

Operating income                                     178,920         174,372            166,583        150,260

Income  from  continuing  operations  before
  income taxes                                       137,603         131,420            106,383         88,370

Income from continuing operations before
  extraordinary  items and cumulative effect
  of accounting change                                87,051          83,295             62,025         50,469

Discontinued operations, net                             157              78             11,912          9,483
Extraordinary gain (loss), net                       (9,229)         (9,229)              6,003          6,003
Cumulative effect of accounting change, net         (44,577)               -                  -              -
--------------------------------------------------------------------------------------------------------------
Net income                                           $33,402         $74,144            $79,940        $65,955
==============================================================================================================
Diluted earnings per share:
Income from continuing operations before
  extraordinary  items and cumulative effect
  of accounting change                                $0.28           $0.27              $0.21          $0.17

Discontinued operations, net                               -               -               0.04           0.03
Extraordinary gain (loss), net                        (0.03)          (0.03)               0.02           0.02
Cumulative effect of accounting change, net           (0.15)               -                  -              -
--------------------------------------------------------------------------------------------------------------
Diluted earnings per share                             $0.11           $0.24              $0.26          $0.22
==============================================================================================================
</TABLE>

1)   During the third quarter of 2002, the Company sold its Terminix  operations
     in the United  Kingdom.  The financial  results from these  operations have
     been reclassified from "Continuing Operations" to "Discontinued Operations"
     for   all   periods   presented.   Amounts   as   restated   include   this
     reclassification. The amount for 2002 reflects the cumulative effect of the
     change in accounting principle at American Home Shield.

AMERICAN HOME SHIELD DEFERRED ACQUISITION COSTS
In July 2002, the Company changed its method of accounting for deferred customer
acquisition  costs in its  American  Home  Shield  business  from  SFAS No.  60,
"Accounting  and  Reporting  by  Insurance  Enterprises,"  pursuant to which the
Company believed it was appropriate to amortize deferred  acquisition costs over
the expected customer life to FASB Technical Bulletin No. 90-1,  "Accounting for
Separately Priced Extended Warranty and Product Maintenance Contracts," pursuant
to which  deferred  acquisition  costs are amortized  over the initial  contract
life.

The new method of  accounting  reduced  after-tax  earnings  by $.03 per diluted
share in 2002,  but had no  material  impact on cash flow in  current  or future
years. In the second quarter of 2002, the Company retroactively  recorded to the
first  quarter of 2002 a  cumulative  charge of $45  million  ($.15 per  diluted
share) to effect this change.

Following  discussions with the Staff of the Securities and Exchange Commission,
the Company has restated prior years to account for deferred  acquisition  costs
in  accordance  with  FASB  Technical  Bulletin  No.  90-1.  The  effect of this
restatement is to eliminate the cumulative  charge for the accounting change and
reduce full year income from  continuing  operations by $8.5 million or $.03 per
diluted share in 2001, and $6.1 million or

                                       7
<PAGE>



$.02 per diluted share in 2000. In addition,  this change results in a reduction
of retained earnings of $30 million at January 1, 2000. This restatement reduced
income from continuing  operations by $.5 million for the second quarter of 2001
and $4.7 million for the six months ended June 30, 2001.

TRADE NAME LICENSE FEE
In connection  with the sale of its Management  Services  business in the fourth
quarter of 2001,  the Company  entered into a three-year  licensing  arrangement
with  ARAMARK  Corporation  for the use of the  ServiceMaster  trade name.  This
agreement was valued at $15 million and accordingly, a like amount was allocated
from the purchase price.  The Company intended to recognize this amount over the
three-year  contractual  period,  and as such,  recognized  $2  million  related
thereto in each of the first and second  quarters of 2002. In November 2002, the
Company  announced that it had determined  that it was  appropriate to recognize
the entire $15 million  licensing fee in the fourth  quarter of 2001. The effect
of this correction is to increase full year income from continuing operations by
$9 million and diluted  earnings per share by $.03 in 2001, and to reduce income
from  continuing  operations  by $2.5 million and diluted  earnings per share by
$.01 in the first half of 2002.  For the second quarter 2002,  this  restatement
reduced income from continuing operations by $1.3 million.

INSURANCE (TRUGREEN)
In January 2002, the Company reported that it had recognized a $9 million pretax
expense in 2001  relating to a revised  estimate of the 2000  insurance  reserve
requirements.  Net income has been  restated  for this item which  results in an
increase to full year  income from  continuing  operations  of $3.7  million (or
$.01) in 2001 and a decrease to income from  continuing  operations  of the same
amount in 2000.  The  remaining  adjustment  results in a decrease  to full year
income from  discontinued  operations of $1.1 million in 2000. This  restatement
impacted the fourth quarter of 2001.

REINCORPORATION TAX

Prior to 1997,  the  Company was in  partnership  form and  therefore  was not a
federal taxpayer. Consequently, the Company did not record deferred tax balances
reflecting  the  differences  between  the book and tax basis of its  assets and
liabilities. When the Company converted to corporate form in 1997, it realized a
significant step-up in the tax basis of its assets,  which was largely reflected
as an increase in the basis of the tax  intangibles and provided for significant
tax deductions over the next 15 years. In accounting for this event in 1997, the
Company recorded the net deferred tax asset associated with differences  between
the book and tax basis of its tangible assets and liabilities.  As it related to
intangible  assets,  the  Company  made a  determination  that the tax  basis of
intangibles  equaled  the  overall  book  balance  of  intangible  assets  on an
enterprise  basis.  Subsequently it was determined that intangible assets needed
to be  considered  at the  individual  business  unit level which  resulted in a
situation where tax basis exceeded book basis in certain units.  This difference
created an  additional  deferred tax asset.  The Company  restated the financial
statements to reflect the deferred tax asset as if it had been recorded in 1997.

This change results in an increase to retained earnings as of January 1, 2000 of
$92.6  million,  and an increase to the full year tax provision  for  continuing
operations of $.8 million in both 2001 and 2000 and an increase to the full year
tax  provision  for  discontinued  operations of $.8 million and $1.2 million in
2001 and 2000, respectively. This restatement also results in an increase to the
tax  provision  relating  to the gain on certain  businesses  sold in the fourth
quarter of 2001 of $45.8 million.  The net impact of these items was to increase
deferred tax assets by $33.4  million and equity by $43.2 million as of December
31, 2001. This restatement increased the tax provision for continuing operations
by $.2 million and $.4 million for the second  quarter and six months ended June
30,  2001,  respectively.  In  addition,  the  tax  provision  for  discontinued
operations  increased by $.3 million and $.6 million for the second  quarter and
six months ended June 30, 2001, respectively.

OTHER, NET
Other items primarily  relate to adjustments in accruals,  timing of revenue and
expense items and other miscellaneous  items. The Company also determined it was
appropriate to expense the costs associated with telephone directory  placements
when the directory is published rather than expensing the cost over the contract
period.  In addition,  certain  operating leases of constructed  properties have
been included in the balance sheet as assets with associated debt. The financial
statements  have been  restated from the amounts  previously  reported for these
items. The restatement related to these items resulted in income from continuing
operations  increasing  $2.9 million and  decreasing  $.2 million for the second
quarter 2002 and 2001, respectively. Income


                                       8
<PAGE>


from  continuing  operations  increased by $2.7 million and $2.8 million for the
six months ended June 30, 2002 and 2001, respectively.  Income from discontinued
operations increased by $.1 million and decreased by $1.1 million for the second
quarter 2002 and 2001, respectively.  For the six months ended June 30, 2002 and
2001,  income from  discontinued  operations  decreased  by $.1 million and $1.8
million, respectively.

INTERIM ACCOUNTING
TruGreen  ChemLawn  incurs  pre-season  advertising  costs and annual repair and
maintenance  procedures  in the first  quarter.  These  costs are  deferred  and
recognized as expense in proportion to the related  revenues.  Full-year results
are not affected.  The quarterly information for 2002 and 2001 has been restated
to treat certain costs that were previously  deferred,  as current period costs.
There was no impact on  full-year  results for 2002 and 2001 as a result of this
change.  This  restatement   resulted  in  income  from  continuing   operations
increasing  by $7.8 million and $5.6 million for the second  quarter of 2002 and
2001, respectively,  and decreasing by $4.0 million and $9.3 million for the six
months ended June 30, 2002 and 2001, respectively.

Note 3: The Company has  identified the most  important  accounting  policies in
order to portray its financial condition and results of operations. These relate
primarily to revenue recognition and the deferral of customer acquisition costs.
The following  revenue  recognition  policies  have not changed since  year-end.
Revenues  from  lawn  care,  non-baiting  termite,  pest  control,   heating/air
conditioning and plumbing  services are recognized as the services are provided.
Revenues from  landscaping  services are  recognized  based upon agreed  monthly
contract   payments  or  when  services  are   performed   for   non-contractual
arrangements.  Revenues from the Company's  commercial  installation  contracts,
primarily  relating to HVAC,  are  recognized  on the  percentage  of completion
method in the ratio that total  incurred  costs bear to total  estimated  costs.
Fees from home warranty and termite baiting contracts are recognized as revenues
over the life of the  contract in  proportion  to the direct  costs  (service or
claim), which are expensed as incurred.  Franchised revenues (which in aggregate
represents  approximately  three  percent  of  consolidated  totals)  consist of
initial  franchise  fees and  continuing  monthly fees based upon the franchisee
revenue.   Revenue  is  recognized   when  reported  from  the   franchisee  and
collectibility is assured.

Customer  acquisition costs, which are incremental and direct costs of obtaining
the customer,  relating to several of the  Company's  contracts are deferred and
amortized  over the life of the contract,  in proportion to revenue  recognized.
These costs  include  sales  commissions  and direct  selling costs which can be
shown to have resulted in a successful sale.

TruGreen ChemLawn has significant seasonality to its business. In the winter and
early spring,  this business  sells a series of lawn  applications  to customers
which are  rendered  primarily  in March  through  October.  The Company  incurs
incremental  selling  expenses at the beginning of the year that directly relate
to successful  sales in which the revenues will be recognized in later quarters.
This business also defers, on an interim basis, pre-season advertising costs and
annual  repairs  and  maintenance  procedures  that are  performed  in the first
quarter. These costs are deferred and recognized  approximately in proportion to
the contract revenue over the production season, and are not deferred beyond the
calendar year-end.

As noted  above,  TruGreen's  pre-season  advertising  costs  are  deferred  and
recognized  approximately  in proportion to the contract  revenue over the year.
These costs are not deferred  beyond the calendar  year-end.  Beginning in 2002,
the cost of direct-response advertising at Terminix is capitalized and amortized
over its expected period of future benefits.  This  direct-response  advertising
consists primarily of direct-mail promotions,  for which the cost is capitalized
and amortized over the one-year customer contract life.

The preparation of the financial  statements requires management to make certain
estimates  and  assumptions   required  under  generally   accepted   accounting
principles which may differ  materially from the actual results.  Disclosures in
the 2001 Annual Report  presented the significant  areas that require the use of
management's  estimates and discussed how  management  formed its judgment.  The
areas   discussed   included  the  allowance  for   receivables,   accruals  for
self-insured retention limits related to medical, workers compensation, auto and
general liability  insurance,  the possible outcome of litigation and the useful
lives for depreciation  and  amortization  expense and the valuation of tangible
and  intangible   assets.   There  have  been  no  changes  in  these  areas  or
methodologies in 2002.


                                       9
<PAGE>



Note 4: The  Company  carries  insurance  policies on  insurable  risks which it
believes to be appropriate.  The Company  generally has  self-insured  retention
limits and has obtained fully insured layers of coverage above such self-insured
retention  limits.  Accruals  for  self-insurance  losses  are made based on the
Company's claims experience and actuarial  assumptions.  The Company has certain
liabilities with respect to existing or potential  claims,  lawsuits,  and other
proceedings.  The Company accrues for these liabilities when it is probable that
future costs will be incurred and such costs can be reasonably estimated.

The  Company  believes  that  other  legal  proceedings  and  currently  pending
litigation  arising in the ordinary  course of business will not have a material
effect on the consolidated financial statements.

Note 5: In June 2001,  the Financial  Accounting  Standards  Board (FASB) issued
Statement of Financial  Accounting  Standards  (SFAS) 142,  "Goodwill  and Other
Intangible  Assets".  SFAS 142 requires that after  December 31, 2001,  existing
goodwill  will no longer be  amortized  and  intangible  assets with  indefinite
useful lives will not be amortized until their useful lives are determined to be
no longer indefinite.  In accordance with SFAS 142, the Company discontinued the
amortization  of goodwill  and  indefinite  lived  intangible  assets  effective
January 1, 2002.  Goodwill  and  intangible  assets that are not  amortized  are
subject  to  at  least  an  annual  assessment  for  impairment  by  applying  a
fair-value-based  test. The Company completed its initial assessment of goodwill
impairment in the second  quarter of 2002 and the testing  concluded  that there
were no  impairment  issues.  Estimated  fair  value  was  determined  for  each
reporting unit by utilizing the expected  present value of the future cash flows
of the units. In all instances,  the estimated fair value of the reporting units
exceeded  their book values.  In accordance  with SFAS 142, the following  table
provides summarized transitional information for the periods ended June 30, 2002
and 2001,  with the 2001  information  presented on an adjusted basis to reflect
the elimination of amortization expense required under SFAS 142:
<TABLE>

                                                        Three Months Ended                Six Months Ended
                                                             June 30,                         June 30,
                                                   -----------------------------    ------------------------------
(in thousands, except per share data)                 2002             2001            2002             2001
                                                   ------------    -------------    ------------    --------------
<S>                                                   <C>              <C>             <C>               <C>
Reported operating income                             $134,676         $115,931        $174,372          $150,260
Add back:  Goodwill and trade name
  amortization                                               -           15,621               -            30,450
                                                   ------------    -------------    ------------    --------------
Operating income as adjusted under
   SFAS 142                                           $134,676         $131,552        $174,372          $180,710
                                                   ============    =============    ============    ==============
Reported income from continuing
  operations before extraordinary
  gain/(loss)                                          $71,437          $49,735         $83,295           $50,469
Add back:  Goodwill and trade name
  amortization, net of tax                                   -           10,550               -            20,695
                                                   ------------    -------------    ------------    --------------
Income from continuing operations
  before extraordinary gain/loss as
  adjusted under SFAS 142                               71,437           60,285          83,295            71,164
Discontinued operations, net of taxes                      295            4,225              78             9,483
Extraordinary gain/(loss), net of taxes                (9,229)                -         (9,229)             6,003
                                                   ------------    -------------    ------------    --------------
Net income as adjusted under SFAS 142                  $62,503          $64,510         $74,144           $86,650
                                                   ============    =============    ============    ==============

Reported basic earnings per share from
  continuing operations before
  extraordinary gain/(loss)                              $0.24            $0.17           $0.28             $0.17
Add back:  Goodwill and trade name
  amortization, net of tax                                   -             0.04               -              0.07
                                                   ------------    -------------    ------------    --------------
Basic earnings per share from continuing
  operations before extraordinary gain/(loss)
  as adjusted under SFAS 142                              0.24             0.20            0.28              0.24
Discontinued operations, net                                 -             0.01               -              0.03
Extraordinary gain/(loss), net                          (0.03)                -          (0.03)              0.02
                                                   ------------    -------------    ------------    --------------
Basic earnings per share as adjusted
  under SFAS 142                                         $0.21            $0.22           $0.25             $0.29
                                                   ============    =============    ============    ==============
</TABLE>


                                       10
<PAGE>



<TABLE>




                                                        Three Months Ended                Six Months Ended
(in thousands, except per share data)                        June 30,                         June 30,
                                                   -----------------------------    ------------------------------

Reported diluted earnings per share
  from continuing operations before
<S>                                                      <C>              <C>             <C>               <C>
  extraordinary gain/(loss)                              $0.23            $0.16           $0.27             $0.17
Add back:  Goodwill and trade name
  amortization, net of tax                                   -             0.03               -              0.07
                                                   ------------    -------------    ------------    --------------
Diluted earnings per share from continuing
  operations before extraordinary gain/(loss)
  as adjusted under SFAS 142                              0.23             0.20            0.27              0.24
Discontinued operations, net                                 -             0.01               -              0.03
Extraordinary gain/(loss), net                          (0.03)                -          (0.03)              0.02
                                                   ------------    -------------    ------------    --------------
Diluted earnings per share as adjusted
  under SFAS 142                                         $0.20            $0.21           $0.24             $0.29
                                                   ============    =============    ============    ==============
</TABLE>


The following table summarizes goodwill and intangible assets.

(in thousands)                               As of              As of
                                            June 30,        December 31,
                                              2002              2001
                                         ---------------    --------------
Goodwill (1)                                 $1,909,792        $1,904,178
Trade names (1)                                 238,550           238,550

Other intangible assets                          76,478            74,197
Accumulated amortization (2)                   (55,932)          (51,611)
                                         ---------------    --------------
Net other intangibles                            20,546            22,586
                                         ---------------    --------------
Total                                        $2,168,888        $2,165,314
                                         ===============    ==============


(1)  Not subject to amortization
(2)  Annual  amortization  expense of  approximately $6 - $8 million is expected
     over the next five years.


Note 6: The  Company  has  announced  that,  beginning  in 2003,  it will  begin
accounting for employee stock options as compensation expense in accordance with
SFAS 123,  "Accounting for Stock Based  Compensation."  If the Company continues
its historical  pattern of option  granting,  the impact would be  approximately
$.005 per diluted share in 2003, growing to approximately $.03 per diluted share
over five years.

In April 2002, the FASB issued SFAS 145,  "Rescission of FASB  Statements No. 4,
44, and 64, Amendment of FASB Statement No. 13, and Technical Corrections".  The
primary  impact  to the  Company  of SFAS 145 is that it  rescinds  SFAS 4 which
required all  material  gains and losses from the  extinguishment  of debt to be
classified as extraordinary  items.  SFAS 145 requires that the more restrictive
criteria of APB Opinion No. 30 will be used to  determine  whether such gains or
losses are  extraordinary.  The Company  intends to adopt SFAS 145 in its fiscal
year 2003,  as  required  by SFAS 145.  Adoption  of SFAS 145 will result in the
reclassification  of the extraordinary  gains/losses into income from continuing
operations  included in the accompanying  Condensed  Consolidated  Statements of
Income.

In June 2002, the FASB issued SFAS 146,  "Accounting  for Costs  Associated with
Exit or Disposal Activities".  SFAS 146 requires recording costs associated with
exit or disposal  activities  at their fair  values  when a  liability  has been
incurred.  Under  previous  guidance,  certain  exit  costs  were  accrued  upon
management's  commitment  to an exit plan,  which is generally  before an actual
liability has been  incurred.  The provisions of SFAS 146 are effective for exit
or disposal activities that are initiated after December 31, 2002.

Note 7: On October 3, 2001 the Company's Board of Directors approved a series of
strategic  actions which were the culmination of an extensive  portfolio  review
process  that was  initiated  in the  first  quarter  of  2001.  The goal of the
portfolio  review was to  increase  shareholder  value by creating a focused and
aligned  company that  provides the greatest  return and growth  potential.  The
Company  determined  it could  best  achieve  these  goals with a  portfolio  of
businesses which support the business  strategy to become America's Home Service
Company and have  attractive  cash flow and return  characteristics.  As part of
this  determination,  in the  fourth  quarter  of  2001,  the  Company  sold its
Management  Services  business to ARAMARK  Corporation  for

                                       11
<PAGE>


approximately  $800 million.  Also in the fourth  quarter of 2001, the Company's
Board of  Directors  approved  the exit of  non-strategic  and  under-performing
businesses  including  TruGreen  LandCare  Construction,  Certified Systems Inc.
(CSI),  and  certain  other small  operations.  The  Company  sold its  TruGreen
LandCare  Construction  operations to  Environmental  Industries,  Inc. (EII) in
certain  markets and entered into an agreement  with EII to manage the wind-down
of commercial  landscaping  construction  contracts in the remaining markets. In
addition, the Company sold all of its customer contracts relating to the exit of
CSI (the Company's  professional employer  organization),  to AMS Staff Leasing,
N.A., Inc. The Company also  completed,  in the fourth quarter of 2001, the sale
of certain  subsidiaries  of its European  pest  control and  property  services
operations. The results of these discontinued business units have been separated
and  classified  as  Discontinued   Operations  in  the  accompanying  financial
statements.

The  Company  continues  to carry  certain  assets on its  financial  statements
relating  to these  operations.  Management  is actively  selling the  remaining
equipment and collecting the outstanding receivables.  The Company believes that
the remaining  assets are presented at their net realizable  value. In addition,
reserves and accrual  balances  remain on the financial  statements  relating to
these  operations.   Cash  payments  incurred  for  the  wind-down  of  LandCare
construction contracts, lease termination costs, workers compensation and health
claims  as well as  professional  service  fees  have been made in the first six
months of 2002. The remaining balances are outlined in the table below.

In the  fourth  quarter  of  2001,  the  Company  recorded  a charge  for  asset
impairments  and  other  items  which  included   accruals  for  residual  value
guarantees on leased properties,  severance for former executives and terminated
employees,  and other  costs.  During the second  quarter of 2002,  the  Company
completed the sale of its ownership interest in five assisted living facilities.
These properties were financed through a synthetic lease  arrangement,  whereby,
the Company  guaranteed the residual  value of the  properties.  At year-end,  a
$13.5  million  reserve  was  established  representing  the amount by which the
residual value guarantees  exceeded the value of bids to purchase the facilities
at that time.  The final sales price was  significantly  greater  than these bid
levels  and the  Company  realized a gain of $3.6  million  from the sale on the
assisted living properties.

The table below  summarizes  the  activity  during the six months ended June 30,
2002 for the  remaining  liabilities  from the  discontinued  operation  and the
reserves for items recorded in the fourth quarter of 2001. The Company  believes
that the remaining reserves continue to be adequate and reasonable.
<TABLE>

(in thousands)                     Balance at          Cash                            Balance at
                                  December 31,       Payments          Income/          June 30,
                                      2001           or Other         (Expense)           2002
                                 ---------------    -----------       ----------      --------------
Remaining liabilities from
  discontinued operations
<S>                                     <C>            <C>               <C>                <C>
     LandCare Construction              $34,100        $12,000           $(100)             $22,200
     Certified Systems, Inc.             23,800          5,500                -              18,300
     Management Services                  7,400            900                -               6,500
     International businesses            19,600          (400)  (1)           -              20,000
     Other                               16,100          6,300                -               9,800
Reserves related to strategic
  actions in the fourth
  quarter of 2001                       $36,000        $10,600           $3,600             $21,800

</TABLE>


(1)  The  liabilities  of this  business  were  assumed by the buyer of the sold
     operations. No cash payments were required.


The  Company  recorded  a $3.2  million  charge in the  second  quarter  of 2002
relating to the severance and  termination  agreement of a key  executive.  This
severance will be paid out over three years.


Note 8: Basic  earnings per share are computed by dividing  income  available to
common stockholders by the weighted-average number of shares outstanding for the
period.  The weighted  average common shares for the diluted  earnings per share
calculation includes the incremental effect related to outstanding options whose
market price is in excess of the exercise  price.  Shares  potentially  issuable
under  convertible  securities have been considered  outstanding for purposes of
the diluted earnings per share  calculations.  In computing diluted earnings per
share, the after-tax interest expense related to convertible debentures is added
back to net income in the numerator, while the diluted shares in the denominator
include the shares issuable upon  conversion of the  debentures.  The effects of
outstanding stock options whose market price is in excess of the exercise price

                                       12
<PAGE>


and shares  potentially  issuable  under  convertible  securities  have not been
included for the six months ended June 30, 2002 and 2001, respectively, as their
effect would have been anti-dilutive.

The following  table  reconciles  both the numerator and the  denominator of the
basic earnings per share from continuing operations computation to the numerator
and the denominator of the diluted earnings per share from continuing operations
computation.
<TABLE>


(in thousands, except per share data)                          Three Months                          Three Months
                                                           Ended June 30, 2002                   Ended June 30, 2001
                                                     --------------------------------       ------------------------------
Continuing Operations:                                Income       Shares      EPS           Income      Shares      EPS
----------------------                               --------     --------   ------         --------    --------   ------
<S>                                                   <C>         <C>        <C>            <C>        <C>         <C>
Basic earnings per share                              $71,437     301,092    $0.24          $49,735    298,547     $0.17
                                                                             ======                                ======
Effect of dilutive securities, net of tax:
    Options                                                         7,182                                4,060
    Convertible securities                              1,195       8,200                     1,191      8,157
                                                     ----------   ---------                 --------   --------

 Diluted earnings per share                            $72,632    316,474    $0.23          $50,926    310,764     $0.16
                                                     ========     ========   ======         ========    ========   ======

</TABLE>
<TABLE>


                                                                Six Months                            Six Months
                                                           Ended June 30, 2002                   Ended June 30, 2001
                                                     --------------------------------       ------------------------------
Continuing Operations:                                Income       Shares      EPS           Income      Shares     EPS
----------------------                               --------     --------   ------         --------    --------   -----
<S>                                                   <C>         <C>        <C>            <C>          <C>        <C>
Basic earnings per share                              $83,295     300,653    $0.28          $50,469      298,170    $0.17
                                                                             ======                                ======
Effect of dilutive securities, net of tax:
    Options                                                         7,047                                  3,973
                                                     --------     --------                  --------    --------

Diluted earnings per share                            $83,295     307,700    $0.27          $50,469      302,143    $0.17
                                                     ========     ========   ======         ========    ========   ======

</TABLE>

Note 9: In the Condensed Consolidated Statements of Cash Flows, the caption Cash
and  Cash  Equivalents   includes   investments  in  short-term,   highly-liquid
securities having a maturity of three months or less.  Supplemental  information
relating  to the  Condensed  Consolidated  Statements  of Cash Flows for the six
months ended June 30, 2002 and 2001 is presented in the following table:

                                                      (in thousands)
                                                    2002           2001
                                                ----------    ------------
Cash paid or (received) for:
Interest expense.............................  $   44,956     $   64,845
Interest and dividend income.................  $   (6,108)    $   (4,366)
Income taxes.................................  $   31,294     $  (12,277)

The decrease in interest  paid in 2002 is  primarily  due to reduced debt levels
reflecting debt  retirements  utilizing the proceeds from the sale of Management
Services.  The increase in interest  income received is also due to the proceeds
received from the Management Services sale as the Company maintained significant
cash levels  throughout the year. The tax payment in 2002 resulted from the gain
on the sale of the Management Services business which compared to the prior year
tax refund of $21 million related to prior year over-payments.

Note 10: Total comprehensive  income was $57.7 million and $51.8 million for the
three months ended June 30, 2002 and 2001,  respectively,  and $70.9 million and
$52.2  million for the six months  ended June 30,  2002 and 2001,  respectively.
Total comprehensive income includes primarily net income,  changes in unrealized
gains and losses on marketable securities and translation balances.

Note 11: On March 23, 2001, the Company entered into an agreement which provides
for the ongoing  revolving sale of a designated  pool of accounts  receivable of
TruGreen and Terminix.  At June 30, 2002, there were no outstanding  receivables
sold to third parties under this  agreement.  However,  the Company may sell its
receivables in the future which would provide an alternative funding source.

Note 12: In the second  quarter of 2002, the Company  recorded an  extraordinary
loss on early debt  extinguishment of $9.2 million after-tax or $.03 per diluted
share   resulting  from  the  repurchase  of   approximately   $218  million  in
ServiceMaster  corporate  bonds pursuant to a tender offer. In the first quarter
of 2001, the Company  repurchased  approximately  $35 million of its public debt
securities and recorded an extraordinary  gain of $6.0 million after-tax or $.02
per diluted  share.  The Company  intends to adopt SFAS


                                       13
<PAGE>


145  beginning  in  fiscal  2003.  Adoption  of  SFAS  145  will  result  in the
reclassification  of the  extraordinary  gain/loss  into income from  continuing
operations.

Note 13: The Company maintains minority investors in the combined ARS/AMS entity
as well as in Terminix.  Members of management  acquired,  at fair market value,
equity  interests in ARS. The Company and the equity  investors have  respective
options to acquire or sell the minority interests in the future at a price based
on fair market value. The future  acquisition of this minority  interest will be
recorded as additional  purchase cost at the time of payment.  At Terminix,  the
minority ownership reflects an interest issued to the prior owners of the Allied
Bruce  Terminix  Companies  in  connection  with that  acquisition.  This equity
security is exchangeable  into eight million  ServiceMaster  common shares.  The
ServiceMaster  shares are  included  in the shares used for the  calculation  of
diluted earnings per share.

In January  2001,  Jonathan P. Ward,  President and Chief  Executive  Officer of
ServiceMaster,  purchased from  ServiceMaster a 5.50% convertible  debenture due
January 9, 2011, with a face value of $1.1 million.  ServiceMaster  financed the
purchase of the  debenture  with a 5.50% full recourse loan due January 9, 2011.
In May 2001, Mr. Ward purchased a second 5.50% convertible debenture due May 10,
2011,  with a face  value of $1.1  million.  ServiceMaster  financed  50% of the
purchase price of this second  debenture with a 5.50% full recourse loan due May
10, 2011. Each debenture becomes convertible into 20,000 shares of ServiceMaster
common stock on December 31 on each of the years 2001 through 2005.

Note 14:  The  business  of the  Company is  conducted  through  five  operating
segments:   TruGreen,   Terminix,   American  Home  Shield,  ARS/AMS  and  Other
Operations.  Due to the Company's sale of its Management  Services business unit
and its exit from other businesses in 2001,  certain operations have become more
significant  for  segment  reporting  purposes.  As a result,  the  Company  has
expanded  its business  segment  reporting  which will allow for better  ongoing
visibility  into the components of the business.  The companies that  previously
were reported in the Home  Maintenance  & Improvement  segment have been further
broken  out into  American  Home  Shield and the  combination  of  ARS/AMS.  The
franchise operations,  ServiceMaster Clean and Merry Maids, formerly in the Home
Maintenance & Improvement segment, are reported in the Other Operations segment.
In  accordance  with  Statement of Financial  Accounting  Standards No. 131, the
Company's  reportable segments are strategic business units that offer different
services. The TruGreen segment provides residential and commercial lawn care and
landscaping  services  through  the  TruGreen  ChemLawn  and  TruGreen  LandCare
companies. As a result of the decision in the fourth quarter of 2001 to exit the
LandCare Construction business,  the results of the construction  operations are
now included in discontinued  operations for all periods.  The Terminix  segment
provides  termite and pest control  services to residential  and commercial U.S.
customers.  The  American  Home  Shield  segment  provides  home  warranties  to
consumers that cover heating, ventilation, air conditioning (HVAC), plumbing and
certain appliances. This segment also includes home inspection services provided
by AmeriSpec.  The American Residential Services,  (ARS) and American Mechanical
Services (AMS) segment  provides HVAC and plumbing  services  provided under the
ARS, AMS and Rescue Rooter brand names.  The Other  Operations  segment includes
the franchise  operations of ServiceMaster  Clean and Merry Maids, which provide
disaster restoration and cleaning services as well as the Company's headquarters
operations  which  provides  various  technology,  marketing,  finance and other
support services to the business units.

Segment  information is presented  below. As discussed in Note 2 in the Notes to
the Condensed  Consolidated  Financial Statements,  the information for 2002 and
2001 has been restated.

SFAS 142, "Goodwill and Other Intangible Assets", eliminates the amortization of
goodwill and  intangible  assets with  indefinite  lives  beginning in 2002. The
table  below also  presents  "Proforma"  information  for 2001 which  eliminates
amortization  expense related to goodwill and intangible  assets with indefinite
lives,  so that these  periods are  presented on a comparable  basis to the 2002
information.



                                       14
<PAGE>



<TABLE>



(In thousands)                                            Three Months          Three Months          Three Months
                                                         Ended June 30,        Ended June 30,        Ended June 30,
                                                              2002                  2001                  2001
                                                            Reported              Reported              Proforma
----------------------------------------------------------------------------------------------------------------------
Operating Revenue:
<S>                                                               <C>                   <C>
  TruGreen                                                        $434,279              $430,065
  Terminix                                                         256,652               231,633
  American Home Shield                                             116,440               100,027
  ARS/AMS                                                          192,079               224,173
  Other Operations                                                  35,487                34,136
-------------------------------------------------------------------------------------------------
Total Operating Revenue                                         $1,034,937            $1,020,034
=================================================================================================
</TABLE>
<TABLE>

Operating Income:
<S>                                                                <C>                   <C>                   <C>
  TruGreen                                                         $67,920               $61,912               $68,507
  Terminix                                                          44,289                33,279                38,715
  American Home Shield                                              17,834                10,949                11,559
  ARS/AMS                                                           10,191                13,352                15,672
  Other Operations                                                 (5,558)               (3,561)               (2,901)
----------------------------------------------------------------------------------------------------------------------
Total Operating Income                                            $134,676              $115,931              $131,552
======================================================================================================================
</TABLE>
<TABLE>

                                                                    As of                As of
                                                             June 30, 2002         Dec. 31, 2001
----------------------------------------------------------------------------------------------------------------------
Identifiable Assets:
<S>                                                             <C>                   <C>
  TruGreen                                                      $1,148,644            $1,082,135
  Terminix                                                         846,789               823,333
  American Home Shield                                             356,344               323,229
  ARS/AMS                                                          505,736               519,026
  Other Operations (and discontinued businesses)                   613,872               873,522
-------------------------------------------------------------------------------------------------
Total Identifiable Assets                                       $3,471,385            $3,621,245
=================================================================================================
</TABLE>

<TABLE>

                                                        Six Months          Six Months          Six Months
                                                      Ended June 30,      Ended June 30,      Ended June 30,
                                                           2002                2001                2001
                                                         Reported            Reported            Proforma
----------------------------------------------------------------------------------------------------------------------
Operating Revenue:
<S>                                                           <C>                 <C>
  TruGreen                                                    $663,422            $659,820
  Terminix                                                     476,925             428,421
  American Home Shield                                         202,356             173,189
  ARS/AMS                                                      357,170             415,345
  Other Operations                                              69,327              66,120
-------------------------------------------------------------------------------------------------
Total Operating Revenue                                     $1,769,200          $1,742,895
=================================================================================================
</TABLE>
<TABLE>

Operating Income:
<S>                                                            <C>                 <C>                  <C>
  TruGreen                                                     $74,444             $61,454              $74,644
  Terminix                                                      82,225              63,204               73,022
  American Home Shield                                          21,189              12,076               13,295
  ARS/AMS                                                        7,305              18,621               23,160
  Other Operations                                            (10,791)             (5,095)              (3,411)
----------------------------------------------------------------------------------------------------------------------
Total Operating Income                                        $174,372            $150,260             $180,710
======================================================================================================================
</TABLE>

                                       15
<PAGE>









The following table summarizes the previously amortized goodwill and trade names
by segment that, beginning on January 1, 2002 are no longer amortized.

                                    June 30,            December 31,
                                      2002                  2001
                                ------------------    ------------------
TruGreen                                 $911,183              $910,573
Terminix                                  708,722               705,608
American Home Shield                       72,085                72,085
ARS/AMS                                   347,967               347,863
Other Operations                          108,385               106,599
                                ------------------    ------------------
Total                                  $2,148,342            $2,142,728
                                ==================    ==================













                                       16
<PAGE>








      MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
                                  OF OPERATIONS

RESULTS OF OPERATIONS

SECOND QUARTER 2002 COMPARED TO SECOND QUARTER 2001

CONSOLIDATED REVIEW

The  Company  has  restated  its  financial  statements  for 2001 as well as the
previously  reported  2002  quarterly  results.  See Note 2 of the  Notes to the
Condensed   Consolidated   Financial  Statements  for  the  description  of  the
restatement and the financial statement impact.  This Management  Discussion and
Analysis reflects the impacts of the restatement.

Revenue for the second  quarter was $1.03  billion,  one percent above 2001, and
operating  income was $135 million.  The Company reported income from continuing
operations in 2002 of $71 million,  income from  discontinued  operations of $.3
million,  and a $9 million  extraordinary loss from the early  extinguishment of
debt.  Net income was $63  million in 2002 and $54  million in 2001 and  diluted
earnings per share were $.20 in 2002 and $.18 in 2001.

Diluted earnings per share from continuing operations were $.23 in 2002 compared
with $.16 in 2001. As discussed  further in Note 4 of the Notes to the Condensed
Consolidated  Financial Statements,  Statement of Financial Accounting Standards
(SFAS) No. 142, "Goodwill and Other Intangible Assets",  requires that beginning
in 2002,  goodwill  and trade  names no longer be  amortized.  SFAS 142 does not
permit the  restatement of the 2001 financial  information to reflect the impact
of SFAS 142. The diluted earnings per share  equivalent of reduced  amortization
expense  under SFAS 142 is $.03 ($16 million  pretax) for the second  quarter of
2001.

Second  quarter  operating  income  in 2002 was $135  million  compared  to $116
million in 2001. The 2001 figure  includes $16 million of  amortization  expense
that has been eliminated under SFAS 142.  Operating  margins after adjusting for
the amortization  expense eliminated under SFAS 142 increased to 13.0 percent of
revenue in 2002 from 12.9  percent in 2001.  The  increase in  operating  income
reflects continued strong performance at American Home Shield, solid performance
from Terminix and the TruGreen lawn care  operations,  partially offset by lower
volume in the  heating,  ventilation  and air  conditioning  (HVAC) and plumbing
businesses of ARS and AMS,  increased  workers  compensation  claims at TruGreen
LandCare, as well as increased expenditures related to Company-wide  operational
initiatives and overhead support.

Cost of services  rendered and products sold decreased  slightly for the quarter
and  decreased  as a  percentage  of revenue  to 65.7  percent in 2002 from 66.8
percent  in 2001.  This  decrease  reflects a change in mix of the  business  as
TruGreen  ChemLawn,  Terminix,  and  American  Home Shield  increased in size in
relationship to the overall business of the Company.  These businesses generally
operate at higher gross margin  levels than the rest of the  business,  but also
incur  somewhat  higher selling and  administrative  expenses as a percentage of
revenue. Selling and administrative expenses increased six percent and increased
as a  percentage  of  revenue to 21.0  percent  from 20.1  percent in 2001.  The
increase in selling and administrative  expenses reflects the change in business
mix discussed above, as well as enterprise-wide  initiatives to measure customer
and employee satisfaction, improved marketing techniques and expenditures on the
Six Sigma programs.

In  the  second  quarter  of  2002,  the  Company  completed  two  non-recurring
transactions. The ownership interest in five assisted living facilities was sold
during the quarter, and a gain of $3.6 million was realized.  In addition, a key
executive  signed a  termination  and  severance  agreement in the quarter.  The
Company recorded a $3.2 million charge relating to this agreement. Cash payments
will be made over a three-year period.

Interest  expense  decreased from the prior year,  primarily due to reduced debt
levels  as a portion  of the  proceeds  received  from  sales of the  Management
Services  and certain  European  pest control  businesses  were used to pay down
debt.  Interest and investment income decreased  primarily  reflecting a reduced


                                       17
<PAGE>



level of  investment  gains  realized on the  American  Home  Shield  investment
portfolio. Minority interest and other expense decreased primarily due to losses
incurred  in  2001  relating  to the  sale of  accounts  receivables  under  the
Company's securitization program.

The tax provision in 2002 reflects a lower effective tax rate than 2001 based on
benefits   received   through  the   consolidation   for  tax  purposes  of  the
ServiceMaster  Home Service Center. As a result of the Company's  acquisition of
the minority  interest,  it was able to  reorganize  the  subsidiary in 2002 and
utilize prior year net operating losses of this subsidiary operation.

OTHER DEVELOPMENTS

New distribution channels for the Company's services continue to be explored. In
July 2002,  the Company  announced  that it had  entered  into an  agreement  to
provide Yahoo! consumers the ability to schedule and purchase ServiceMaster home
services  through the newly created Home Service  Center on Yahoo!  Real Estate.
Also in August,  the Home Service Center (a subsidiary of the Company) partnered
with Sears,  Roebuck and Company to allow  customers  to tap into the network of
Sears parts and repair services.

In July 2002,  the Company and the Home Depot  announced that they had concluded
their joint home  services  pilot  program.  The two  companies  will,  however,
continue to explore ways to expand existing  relationships  for installation and
other services on a local basis.

SEGMENT REVIEW

SEGMENT  RESULTS FOR 2002  REFLECT THE  ELIMINATION  OF GOODWILL  AND TRADE NAME
AMORTIZATION REQUIRED UNDER SFAS 142. THEREFORE,  FOR COMPARATIVE PURPOSES, 2001
RESULTS  HAVE  BEEN  PRESENTED  ON A  PROFORMA  BASIS AS IF SFAS 142 HAD BEEN IN
EFFECT FOR 2001 THEREBY  EXCLUDING THE AMORTIZATION  EXPENSE AFFECTED BY THE NEW
ACCOUNTING STANDARD. (SEE THE BUSINESS SEGMENT REPORTING IN NOTE 14 IN THE NOTES
TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS).  MANAGEMENTS DISCUSSION AND
ANALYSIS FOCUSES ON THE 2002 REPORTED AND THE 2001 PROFORMA AMOUNTS.

The TruGreen segment includes lawn care operations  performed under the TruGreen
ChemLawn  brand  name and  landscape  maintenance  services  provided  under the
TruGreen  LandCare  brand name.  This  segment's  results for both 2002 and 2001
exclude the discontinued TruGreen LandCare Construction  business.  The TruGreen
segment  reported  revenue of $434 million,  one percent  above 2001.  Operating
income decreased one percent to $68 million from $69 million (proforma) in 2001,
primarily  reflecting  solid  growth  in the lawn  care  operations,  offset  by
increased  workers  compensation  claims   (approximately  $5  million)  in  the
landscape  operations.  Revenue in the lawn care  business  improved two percent
over  2001,  reflecting  growth in  customer  counts  from  increased  sales and
improved  retention rates. The sales growth has been supported by the deployment
of more sophisticated marketing tools and by reaching customers more effectively
through  broader  distribution  channels.  The  higher  level  of  full  program
customers  has also  increased  the sale of  ancillary  services in the quarter.
Operating  income  margins in the lawn care  operations  improved as a result of
revenue growth and increased leverage of fixed costs. The landscape  maintenance
operations experienced a decline in revenue for the quarter. Although volume was
down, the base of business consists of more profitable contracts with a stronger
customer base and improved pricing.  Operating income margins in the landscaping
operations declined primarily  reflecting increased workers compensation claims,
partially offset by lower material costs.  This business is focusing on specific
operating  initiatives  including  hiring a senior sales  leader,  expanding and
developing its sales force,  continuing to focus on labor  efficiency  programs,
and improving the results of the bottom quartile of its branches.

The Terminix  segment,  which  includes  the  domestic  termite and pest control
services,  reported an 11 percent  increase in revenue to $257 million from $232
million in 2001 and  operating  income  growth of 14 percent to $44 million from
$39  million  (proforma)  in 2001.  Revenue  growth  was  supported  by the 2001
acquisition  of Sears  Termite & Pest  Control as well as new sales and improved
customer  retention  in both the termite and pest  control  business.  Operating
income margins improved over the prior year reflecting the beneficial  impact of
acquisitions and improved labor efficiency,  offset in part by costs for quality
improvement  initiatives  and direct  marketing  expenditures.  The  segment has
produced  steady



                                       18
<PAGE>


improvement in customer retention rates which reflects the increased emphasis on
training and customer service processes in the branches.

The American Home Shield  segment,  which provides home  warranties to consumers
that cover HVAC,  plumbing and other appliances,  reported a 16 percent increase
in revenue to $116 million from $100 million in 2001.  This  increase in revenue
reflected  strong growth in the real estate and third party  channels as well as
improved  customer  renewal rates.  Operating income increased 54 percent to $18
million from $12 million  (proforma) in 2001.  Operating income margins improved
reflecting both lower service costs per claim and a decrease in the incidence of
claims.

The  ARS/AMS  segment  provides  direct  HVAC and  plumbing  services  under the
American  Residential  Services (ARS),  Rescue Rooter,  and American  Mechanical
Services  (AMS) (for  commercial  accounts)  brand names.  The segment  reported
revenue of $192 million, a decrease of 14% from $224 million in 2001.  Operating
income  decreased to $10 million from $16 million  (proforma) in 2001. A decline
in  call  volume  for  air   conditioning   and  plumbing  repairs  and  reduced
construction  activity  continued  to affect the  industry  and  resulted in the
decline in revenue and profit. A comprehensive rebuilding of marketing and sales
strategies is underway to counteract  the impact of the decrease in demand,  and
in the second quarter,  the Company hired a chief marketing  officer for the ARS
operations.

The Other Operations segment includes the Company's  ServiceMaster  Clean, Merry
Maids,  and  international  operations  as well as its  headquarters  functions.
Reported  segment  revenue of $35 million in 2002  compared  with $34 million in
2001,  primarily  reflecting growth in the  ServiceMaster  Clean and Merry Maids
businesses.  The operations achieved revenue and profit growth, primarily driven
by a strong  growth in disaster  restoration  and increased  franchise  sales at
ServiceMaster  Clean and the beneficial  impact of  acquisitions at Merry Maids.
This segment  reported an operating  loss of $6 million in 2002  compared with a
loss of $3 million (proforma) in 2001, reflecting increased  expenditures in the
headquarters organization for Six Sigma and other enterprise-wide initiatives to
support purchasing efficiencies, marketing programs and technology projects.


RESULTS OF OPERATIONS

SIX MONTHS ENDED JUNE 30, 2002 AS COMPARED TO JUNE 30, 2001

CONSOLIDATED REVIEW

Revenue for the six months in 2002  increased  two  percent to $1.8  billion and
operating  income was $174 million.  The Company reported income from continuing
operations in 2002 of $83 million and a $9 million  extraordinary  loss from the
early extinguishment of debt. Net income was $74 million in 2002 and $66 million
in 2001 and diluted earnings per share were $.24 in 2002 and $.22 in 2001.

Diluted earnings per share from continuing operations were $.27 in 2002 compared
with $.17 in 2001.  As  discussed  in the  three-month  comparison,  the diluted
earnings per share equivalent of reduced amortization expense under SFAS 142 are
$.07 ($30 million pretax) for the six months of 2001.

Six month operating  income in 2002 was $174 million compared to $150 million in
2001. The 2001 figure includes $30 million of amortization expense that has been
eliminated   under  SFAS  142.   Operating   margins  after  adjusting  for  the
amortization  expense  eliminated  under SFAS 142  decreased  to 9.9  percent of
revenue in 2002 from 10.4  percent in 2001.  The  decline  in  operating  income
reflects strong increases at American Home Shield and Terminix offset by reduced
volume  in the  HVAC  and  plumbing  businesses  of ARS and  AMS  and  increased
expenditures related to Company-wide operational initiatives.

Cost of services  rendered  and  products  sold  decreased  slightly for the six
months and  decreased  as a  percentage  of revenue to 68.5 percent in 2002 from
69.5 percent in 2001. Selling and  administrative  expenses increased 10 percent
and  increased  as a  percentage  of revenue  to 21.4  percent in 2002 from 19.8
percent in 2001 The  increase in selling and  administrative  expenses  reflects
strong growth in  operations  that have higher gross margin levels than the rest
of the  business,  but also incur  somewhat  higher  selling and  administrative
expenses  as a  percentage  of  revenue,  as well as  increase  expenditures  on
initiatives to

                                       19
<PAGE>



measure customer and employee  satisfaction,  improved marketing  techniques and
expenditures in Six Sigma.

Interest  expense  decreased from the prior year,  primarily due to reduced debt
levels as a portion of the proceeds  received  from the sales of the  Management
Services  and certain  European  pest control  businesses  were used to pay down
debt.  Interest and investment income decreased  primarily  reflecting a reduced
level of  investment  gains  realized on the  American  Home  Shield  investment
portfolio.  Minority  interest and other expense  increased  from the prior year
primarily due to the  elimination  of minority  interest  income  related to the
ServiceMaster  Home Service Center  initiative that was recorded in 2001. In the
first  quarter of 2001 and until May 2001,  the operating  losses  totaling $6.1
million of  ServiceMaster  Home Service Center had been offset through  minority
interest income (below the operating  income line) because of investments in the
venture made by Kleiner Perkins  Caufield & Byers. In December 2001, the Company
acquired the minority interest in the ServiceMaster  Home Service Center held by
Kleiner Perkins and management.  The operating  losses incurred in the first six
months of 2002 from  ServiceMaster Home Service Center have been included in the
accompanying  financial statements without an offset at minority interest income
in the consolidated statements of income.

The tax provision in 2002 reflects a lower effective tax rate than 2001 based on
benefits   received   through  the   consolidation   for  tax  purposes  of  the
ServiceMaster  Home Service Center. As a result of the Company's  acquisition of
the minority  interest,  it was able to  reorganize  the  subsidiary in 2002 and
utilize prior year net operating losses of this subsidiary operation.

KEY PERFORMANCE INDICATORS

The table  below  presents  selected  metrics  related  to  customer  counts and
customer retention for the three stet businesses of the Company.  These measures
are  presented  on a  rolling,  twelve  month  basis in order to avoid  seasonal
anomalies.

                                                  KEY PERFORMANCE INDICATORS
                                                       As of June 30,

                                                   2002             2001
                                               ------------      -------------
TRUGREEN -
   Growth in Full Program Contracts                   1%              -3%
   Customer Retention Rate                         64.5%            62.4%

TERMINIX -
   Growth in Pest Control Customers                  12%              14%
   Pest Control Customer Retention Rate            77.5%            76.2%

   Growth in Termite Customers                        8%              20%
   Termite Customer Retention Rate                 90.1%            88.8%

AMERICAN HOME SHIELD -
   Growth in Warranty Contracts                      15%              11%
   Customer Retention Rate                         53.2%            51.1%

SEGMENT REVIEW

SEGMENT  RESULTS FOR 2002  REFLECT THE  ELIMINATION  OF GOODWILL  AND TRADE NAME
AMORTIZATION REQUIRED UNDER SFAS 142. THEREFORE,  FOR COMPARATIVE PURPOSES, 2001
RESULTS  HAVE  BEEN  PRESENTED  ON A  PROFORMA  BASIS AS IF SFAS 142 HAD BEEN IN
EFFECT FOR 2001 THEREBY  EXCLUDING THE AMORTIZATION  EXPENSE AFFECTED BY THE NEW
ACCOUNTING STANDARD. (SEE THE BUSINESS SEGMENT REPORTING IN NOTE 14 IN THE NOTES
TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS).  MANAGEMENTS DISCUSSION AND
ANALYSIS FOCUSES ON THE 2002 REPORTED AND THE 2001 PROFORMA AMOUNTS.

The TruGreen segment reported revenue of $663 million,  slightly above the prior
year.  Operating  income  of $74  million  in 2002  was  comparable  to the 2001
proforma  amount.  Revenue in the lawn care  business  improved two percent over
2001. Customer contracts have increased one percent over the prior twelve


                                       20
<PAGE>



months  compared  with a  three  percent  decline  in  the  prior  year  period,
reflecting  the  benefit of new  marketing  strategies  as well as the impact of
improved customer retention. In addition to telemarketing,  which is the primary
channel  used by  TruGreen  ChemLawn  to sell its  services,  the  business  has
expanded  expenditures  in direct  mail and  television  advertising  leading to
higher sales of new customers.  Quality and other satisfaction  initiatives have
resulted in improving  retention of existing  customers.  The customer retention
rate improved 210 basis points to 64.5 percent  compared to the same period last
year. The retention rate continued to increase in the second quarter.  Operating
income margins in the lawn care operations  increased  reflecting improved labor
productivity.  Revenue  in the  landscaping  operations  declined  reflecting  a
decrease  in snow  removal  services  due to mild  winter  weather  and a slight
decrease  in  its  core  maintenance  business.   Despite  the  decline  in  the
maintenance  business,  the base of  contracts is more  profitable  reflecting a
stronger  customer base and improved  pricing.  Operating  income margins in the
landscaping  operations  declined  primarily  reflecting the decreased volume of
higher margin snow removal business and increased workers  compensation  claims.
Management is highly focused on mid-season sales of enhanced services to support
second half of the year growth expectations.

The Terminix  segment reported an 11 percent increase in revenue to $477 million
from $428  million  in 2001 and  operating  income  growth of 13  percent to $82
million from $73 million  (proforma) in 2001.  Revenue  growth was driven by the
acquisition  in 2001 of Sears  Termite & Pest Control as well as solid  internal
growth.  One area  where the  Company  has begun to see  challenges  is from the
decrease in  profitable  pest control  customers  from the Sears name in certain
markets. New sales in these markets have not kept pace with cancellations.  As a
result,  the Company  expects to see a reduction in revenue growth in the fourth
quarter.  Terminix has continued to show  favorable  comparisons in both termite
and pest control  customer  retention,  reflecting  increased  focus on quality,
training,  and customer  service  processes in the  branches.  Operating  income
margins improved over 2001 reflecting the impact of the acquisitions, continuing
migration to higher  margin  products,  improved  labor  efficiencies  and lower
material costs. Terminix is in the process of rolling out a new operating system
to support its field  operations.  This system is expected to be in all branches
by 2004.

The American Home Shield  segment  reported a 17 percent  increase in revenue to
$202 million from $173 million in 2001 and operating income growth of 59 percent
to $21 million  compared  to $13  million  (proforma)  in 2001.  Revenue  growth
reflected  increases in all sales channels,  complemented  by improved  customer
retention.  Operating  income  margins  improved as the segment  benefited  from
strong  volume  growth,  lower  service  costs per claim and a  decrease  in the
incidence of claims.

The ARS/AMS  segment  reported a 14 percent  decrease in revenue to $357 million
from $415  million in 2001 and  operating  income of $7 million  compared to $23
million  (proforma)  in 2001. A soft  economic  environment  combined  with mild
weather led to lower demand for heating,  air  conditioning and plumbing repairs
and replacement  service.  These operations also experienced lower  construction
activity in both the residential and commercial sectors.  With new leadership in
place, this business  continues to focus on cost containment  initiatives and is
implementing significant changes to its sales and marketing programs.

Other  Operations  revenue  increased  to $69 million  from $66 million in 2001,
primarily   reflecting  growth  in  the  ServiceMaster  Clean  and  Merry  Maids
businesses. These businesses achieved solid revenue and profit growth, supported
by strong demand for disaster  restoration  services at ServiceMaster  Clean and
acquisitions  at Merry  Maids.  This segment  reported an operating  loss of $11
million  compared  with a loss of $3  million  (proforma)  in  2001,  reflecting
increased  expenditures on enterprise-wide  initiatives  including  procurement,
marketing, and technology.

FINANCIAL CONDITION

Net cash  provided from  operations of $143 million was $38 million  higher than
the first six  months  of 2001  before  the  impact  of the  Company's  accounts
receivable  securitization  program and tax refunds in 2001.  Net cash  provided
from  operations  is 72  percent  higher  than  earnings  for the six months and
represents a 36 percent  increase  over the $105 million that was reported  last
year. This increase was driven,  in part, by a significant  reduction in the use
of working capital, primarily at TruGreen ChemLawn and American Home Shield as a
result of better  receivables,  payables and  inventory  management.  Management
believes that funds generated from operations and other existing  resources will
continue to be adequate to satisfy ongoing working capital needs of the Company.



                                       21
<PAGE>

Cash and marketable  securities  totaled  approximately $205 million at June 30,
2002.  During the second quarter of 2002,  the Company  completed the last major
phase of the debt reduction  program  announced in October 2001,  when through a
tender offer, the Company  repurchased $218 million of its publicly traded debt.
As a result the Company reduced its total  outstanding debt level in the quarter
to approximately  $876 million.  This represents a reduction in debt outstanding
of  approximately  $1.1 billion over the last two years and the Company's lowest
level since the first quarter of 1997. The debt  repurchase  allowed the Company
the opportunity to strengthen its credit profile by focusing the majority of the
repurchase on debt with shorter  maturities.  Approximately 60% of the Company's
debt now matures beyond seven years and 40% beyond fifteen years.  The Company's
first public bond maturity is not due until 2005.

The Company  maintains a three-year  revolving credit facility for $490 million,
which will expire in December  2004.  As of June 30, 2002 the Company had issued
approximately  $130  million  of letters of credit  under the  facility  and had
unused  commitments  of  approximately  $360 million.  The Company also has $550
million of senior  unsecured debt and equity  securities  available for issuance
under an effective shelf registration statement. In addition, the Company has an
agreement to  ultimately  sell, on a revolving  basis,  certain  receivables  to
unrelated third party  purchasers.  At June 30, 2002,  there were no receivables
outstanding  that had been sold to third  parties.  The  agreement  is a 364-day
facility that is renewable at the option of the purchasers. The Company may sell
up to $65 million of its eligible  receivables to these purchasers in the future
and therefore has immediate access to cash proceeds from these sales. The amount
of  eligible  receivables  varies  during the year based on  seasonality  of the
business  and will at times  limit the  amount  available  to the  Company.  The
Company  also  maintains  operating  lease  facilities  with banks  totaling $95
million that provide for the  acquisition  and  development  of properties to be
leased by the Company.  There are residual value  guarantees of these properties
up to 82 percent of the fair market value of the  properties.  At June 30, 2002,
there was approximately  $72 million funded under these  facilities.  Of the $95
million in  facilities,  $80  million  expires in October  2004 and $15  million
expires in January 2008.  Approximately $15 million of these leases that involve
constructed  properties  have been  included on the balance sheet as assets with
related  debt as of June 30, 2002 and  December  31,  2001.  The majority of the
Company's vehicle fleet is leased through operating leases.  The lease terms are
non-cancelable for the first twelve month term, then are month-to-month  leases,
cancelable at the Company's option. There are residual value guarantees (ranging
from 70 percent to 87 percent  depending on the  agreement)  on these  vehicles,
which historically have not resulted in significant net payments to the lessors.
At June 30,  2002,  there was  approximately  $265  million  of  residual  value
relating to the Company's fleet.

The following table presents the Company's obligations and commitments:
<TABLE>

                                                           2003 and   2005 and    2007 and
(In millions)                          Total       2002      2004       2006    later years
-------------------------------------------------------------------------------------------
<S>                                   <C>        <C>        <C>        <C>        <C>
Debt balances                         $  876     $   21     $   73     $  169     $  613
Non-cancelable operating leases (1)      253         30         93         62         68
                                      ------     -------    -------    -------    -------
Total amount                          $1,129     $   51     $  166     $  231     $  681
</TABLE>

(1)  Includes lease payments and residual value guarantees on leased properties.

There  have been no  material  changes in the terms of the  Company's  financing
agreements  since December 31, 2001. As described in the Company's latest Annual
Report to  Shareholders,  the  Company  is party to a number of debt  agreements
which require it to maintain certain  financial and other  covenants,  including
limitations on indebtedness  and interest  coverage  ratio.  In addition,  under
certain  circumstances,  the agreements  may limit the Company's  ability to pay
dividends and  repurchase  shares of common  stock.  These  limitations  are not
expected to be a factor in the Company's  future  dividend and share  repurchase
plans.  Failure by the Company to maintain these  covenants  could result in the
acceleration  of the  maturity of the debt.  At June 30, 2002 the Company was in
compliance with the covenants  related to these debt agreements and based on its
operating  outlook  for the  remainder  of 2002,  expects to be able to maintain
compliance in the future.

The assets and  liabilities  relating to the  discontinued  companies  have been
classified  in separate  captions on the  Condensed  Consolidated  Statements of
Financial Position. In the first quarter, the Company made


                                       22
<PAGE>


approximately  $70 million in tax  payments  relating to the sale of  Management
Services.  There were other  cash  payments  relating  to the  wind-down  of the
discontinued  operations which were offset by cash collected on assets remaining
from these  operations.  Assets of the  discontinued  operations  have  declined
reflecting  cash  collections on receivables  and the sale of fixed assets.  The
liabilities from discontinued operations have decreased reflecting cash outflows
related  to the  wind-down  of  contracts,  lease  termination  costs,  workers'
compensation payments and legal costs.

Receivables and inventories  increased from year-end levels,  reflecting general
business growth and increased  seasonal  activity.  Prepaid  expenses,  deferred
costs  and  other  assets  increased  from  year-end   levels,   reflecting  the
seasonality  in the lawn care  operations  and  increased  volume  of  contracts
written at Terminix and American  Home Shield.  The lawn care  operations  incur
incremental  selling  expenses at the beginning of the year that directly relate
to successful  sales in which the revenues will be recognized in later quarters.
This business also defers, on an interim basis, pre-season advertising costs and
annual  repairs  and  maintenance  procedures  that are  performed  in the first
quarter.  These costs are deferred and  recognized in proportion to the contract
revenue over the  production  season,  and are not deferred  beyond the calendar
year-end.  The Company  also  capitalizes  sales  commissions  and other  direct
contract  acquisition  costs  relating to termite and pest control  contracts as
well as home warranty contracts.  Deferred revenue grew significantly reflecting
increases in customer  prepayments  for lawn care  services and strong growth in
warranty contracts written at American Home Shield.

Capital  expenditures  which include  recurring  capital  needs and  information
technology projects are higher than prior year levels reflecting the payments of
the residual value  guarantees  relating to leases for the five assisted  living
facilities sold in the quarter.  See Note 7 for additional details.  The Company
has no material capital commitments at this time.

Total  shareholders'  equity was $1.2  billion at June 30, 2002 and December 31,
2001,  reflecting  earnings which were offset by cash dividends.  Cash dividends
paid directly to shareholders  totaled $60 million or $.20 per share for the six
months ended June 30, 2002. In July 2002,  the Company paid a third quarter cash
dividend of $.105 per share and declared a fourth quarter cash dividend of $.105
per share payable on October 31, 2002. This quarterly  dividend payment provides
for an annual payment for 2002 of $.41 per share, a 2.5% increase over 2001. The
Company   approves  its  actual  dividend  payment  on  a  quarterly  basis  and
continually  reviews its dividend  policy,  share  repurchase  program and other
capital  structure  objectives.  The Company has not  undertaken  material share
repurchases  during  the first six  months of 2002 or for the year  ended  2001.
Decisions  relating to any future share  repurchases  will take various  factors
into consideration such as the Company's commitment to maintain investment grade
credit ratings,  general  business  conditions,  and other strategic  investment
opportunities.





FORWARD LOOKING STATEMENTS

THE COMPANY'S FORM 10-Q/A FILING CONTAINS  STATEMENTS  CONCERNING FUTURE RESULTS
AND OTHER MATTERS THAT MAY BE DEEMED TO BE  "FORWARD-LOOKING  STATEMENTS" WITHIN
THE MEANING OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995. THE COMPANY
INTENDS THAT THESE  FORWARD-LOOKING  STATEMENTS,  WHICH LOOK FORWARD IN TIME AND
INCLUDE  EVERYTHING  OTHER THAN HISTORICAL  INFORMATION,  BE SUBJECT TO THE SAFE
HARBORS   CREATED   BY  SUCH   LEGISLATION.   THE   COMPANY   NOTES  THAT  THESE
FORWARD-LOOKING STATEMENTS INVOLVE RISKS AND UNCERTAINTIES THAT COULD AFFECT ITS
RESULTS OF  OPERATIONS,  FINANCIAL  CONDITION OR CASH FLOWS.  FACTORS THAT COULD
CAUSE ACTUAL RESULTS TO DIFFER  MATERIALLY  FROM THOSE EXPRESSED OR IMPLIED IN A
FORWARD-LOOKING  STATEMENT INCLUDE THE FOLLOWING (AMONG OTHERS): EXTREME WEATHER
CONDITIONS THAT AFFECT THE DEMAND FOR THE COMPANY'S SERVICES; COMPETITION IN THE
MARKETS  SERVED BY THE  COMPANY;  LABOR  SHORTAGES  OR  INCREASES IN WAGE RATES;
UNEXPECTED  INCREASES IN OPERATING COSTS, SUCH AS HIGHER INSURANCE,  HEALTH CARE
OR FUEL PRICES;  INCREASED  GOVERNMENTAL  REGULATION OF  TELEMARKETING;  GENERAL
ECONOMIC  CONDITIONS  IN THE UNITED  STATES,  ESPECIALLY AS THEY MAY AFFECT HOME
SALES OR CONSUMER SPENDING LEVELS; TIME AND EXPENSES ASSOCIATED WITH INTEGRATING
AND WINDING DOWN  BUSINESSES;  AND OTHER FACTORS  DESCRIBED FROM TIME TO TIME IN
DOCUMENTS FILED BY THE COMPANY WITH THE SECURITIES AND EXCHANGE COMMISSION.



                                       23
<PAGE>




                    QUANTITATIVE AND QUALITATIVE DISCLOSURES
                                ABOUT MARKET RISK

The economy and its impact on discretionary consumer spending, labor wages, fuel
costs,  insurance  costs and medical  inflation  rates could be  significant  to
future operating earnings.

The  Company  does  not hold or  issue  financial  instruments  for  trading  or
speculative   purposes.   The  Company  has  entered  into  specific   financial
arrangements  in the normal course of business to manage  certain  market risks,
with a policy of matching  positions  and  limiting  the terms of  contracts  to
relatively short durations.  The effect of financial instrument  transactions is
not material to the Company's financial statements.

The Company  generally  maintains  the majority of its debt at fixed rates (over
95% of total debt at December  31, 2001 and June 30, 2002) and,  therefore,  its
exposure to interest  rate  fluctuations  is not  significant  to the  Company's
results of operations.  The payments on the approximately $72 million of funding
outstanding  under the Company's real estate  operating lease facilities as well
as its  cancelable  vehicle  fleet and  equipment  operating  leases are tied to
floating  interest  rates.  However,  the Company does not expect  interest rate
fluctuations to be significant to the Company's results of operations.

The following table summarizes  information  about the Company's fixed rate debt
instruments  as of December 31, 2002 and presents the  principal  cash flows and
related  weighted-average  interest rates by expected  maturity dates.  The fair
value of the  Company's  fixed  rate  debt was  approximately  $880  million  at
December 31, 2002.

                               Expected Maturity Date
                       ----------------------------------------
                                                                There-
 (In millions)         2003     2004    2005    2006    2007    After   Total
---------------------- -------- ------- ------- ------- ------- ------  -----
Fixed rate debt        $31      $24     $151    $11     $59     $559     $835
  Avg. Rate            4.2%     4.8%    8.2%    6.0%    6.7%    7.5%     7.2%
---------------------- -------- ------- ------- ------- ------- ------  -----





                                       24
<PAGE>




                           PART II. OTHER INFORMATION

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

(a)      The 2002 Annual Meeting of Shareholders was held on April 26, 2002.

(b)      The following persons were elected as Class of 2005 directors:



Name                        Votes For        Votes Withheld    Broker Non-Votes
-------------------        -----------       --------------    ----------------
Paul W. Berezny, Jr.       247,162,142          7,248,494             N/A
Carlos H. Cantu            248,659,562          5,751,074             N/A
Vincent C. Nelson          246,594,910          7,815,726             N/A
Charles W. Stair           248,226,619          6,184,017             N/A
Jonathan P. Ward           250,546,178          3,864,458             N/A

No votes  were  cast for any  other  nominee  for  directors.  The Class of 2003
continuing in office are: Herbert P. Hess,  Michele M. Hunt, Dallen W. Peterson,
and  David K.  Wessner.  The  Class of 2004  continuing  in  office  are:  Brian
Griffiths, Sidney E. Harris, James D. McLennan, C. William Pollard and Donald G.
Soderquist.

No other matters were submitted to shareholders.

ITEM 6(A): EXHIBITS
<TABLE>

<S>               <C>
Exhibit 18.1      Letter Re: Change in Accounting Principles
Exhibit 99.1      Certification of Chief Executive Officer Pursuant to Section 1350 of Chapter 63
                   of Title 18 of the United States Code
Exhibit 99.2      Certification of Chief Financial Officer Pursuant to Section 1350 of Chapter 63
                   of Title 18 of the United States Code
</TABLE>

ITEM 6(B):    REPORTS ON FORM 8-K


A report on Form 8-K was filed on May 22, 2002 reporting  under "Item 4. Changes
in Registrant's  Certifying  Accountant." In this filing,  the Company  reported
that on May 20,  2002 it had  dismissed  ArthurAndersen  LLP as its  independent
accountants  and,  effective May 22, 2002, the Company engaged Deloitte & Touche
LLP as its new independent accountants.

A report on Form 8-K/A was filed on May 24, 2002 for the purpose of  including a
revised Exhibit 16.1 to the Form 8-K filed on May 22, 2002.

A report on Form 8-K was filed on June 20, 2002  reporting  under "Item 5. Other
Events".  The  purpose  of the report was to  provide  updated  Key  Performance
Indicators that were included in the Company's first quarter  earnings  release.
The Company discussed these metrics in an investors conference on June 20, 2002.


                                       25
<PAGE>










                                    SIGNATURE


Pursuant  to the  requirements  of the  Securities  Exchange  Act of  1934,  the
Registrant  has duly  caused  this  report  to be  signed  on its  behalf by the
undersigned thereunto duly authorized.

Date:  May 14, 2003


                          THE SERVICEMASTER COMPANY
                          (Registrant)

                          By:                    /s/Steven C. Preston
                             ---------------------------------------------------

                                                     Steven C. Preston
                          Executive Vice President and Chief Financial Officer





                                       26
<PAGE>





                    CERTIFICATION OF CHIEF EXECUTIVE OFFICER

I, Jonathan P. Ward, certify that:

1.   I have reviewed this quarterly  report on Form 10-Q/A of The  ServiceMaster
     Company;

2.   Based on my knowledge,  this  quarterly  report does not contain any untrue
     statement of a material fact or omit to state a material fact  necessary to
     make the statements  made, in light of the  circumstances  under which such
     statements  were made, not misleading with respect to the period covered by
     this quarterly report; and

3.   Based on my  knowledge,  the  financial  statements,  and  other  financial
     information  included  in this  quarterly  report,  fairly  present  in all
     material respects the financial  condition,  results of operations and cash
     flows of the  registrant  as of, and for,  the  periods  presented  in this
     quarterly report.


Date:  May 13, 2003

                            /s/ Jonathan P. Ward
                            ---------------------
                            Jonathan P. Ward
                            Chairman and Chief Executive Officer









                                       27
<PAGE>







                    CERTIFICATION OF CHIEF FINANCIAL OFFICER

I, Steven C. Preston, certify that:

1.   I have reviewed this quarterly  report on Form 10-Q/A of The  ServiceMaster
     Company;

2.   Based on my knowledge,  this  quarterly  report does not contain any untrue
     statement of a material fact or omit to state a material fact  necessary to
     make the statements  made, in light of the  circumstances  under which such
     statements  were made, not misleading with respect to the period covered by
     this quarterly report; and

3.   Based on my  knowledge,  the  financial  statements,  and  other  financial
     information  included  in this  quarterly  report,  fairly  present  in all
     material respects the financial  condition,  results of operations and cash
     flows of the  registrant  as of, and for,  the  periods  presented  in this
     quarterly report.



Date:  May 13, 2003

                 /s/ Steven C. Preston
                 ----------------------
                 Steven C. Preston
                 Executive Vice President and Chief Financial Officer





                                       28
<PAGE>